LONDON: World stock markets plunged further on Tuesday as more gloomy evidence emerged of China’s economic slowdown, triggering heavy sell-offs from Hong Kong to New York and raising fears of weakening global growth.
Downbeat data showed factory activity in China hit a three-year low, fuelling concern over the health of the world’s second largest economy which has been a main engine of economic expansion.
Tokyo stocks tumbled almost four per cent as China woes spread, with Europe’s main markets following in its wake by closing down by up to three per cent. China’s statistics bureau said its Purchasing Managers’ Index of manufacturing activity came in at 49.7 last month, its lowest since August 2012. A reading below the 50-point mark indicates contraction.
The data sent Wall Street sharply lower in mid-day trade with both the Dow Jones Industrial Average and the S&P 500 index down nearly two per cent, and the tech-rich Nasdaq giving up 1.46 per cent.
Christine Lagarde, head of the International Monetary Fund, also added to the gloom on Tuesday when she warned that global growth this year would be “likely weaker” than previously anticipated, less than two months after the IMF cut its global forecast for 2015 to 3.3 per cent.
“Equity markets (are) starting the new month in the red after yet more disappointing China manufacturing data increases concerns about (the) slowing of the world’s number two economy,” said analyst Mike van Dulken at Accendo Markets.
Frankfurt, London and Paris were also pulled downward by declining domestic manufacturing figures.
“Another set of disappointing Chinese manufacturing data has prompted (losses) for UK and European stocks on Tuesday with a slowdown in Europe’s own manufacturing sector exacerbating the declines,” added CMC Markets analyst Jasper Lawler.
Global equities — hammered last week on worries that the flagging Chinese economy would spark a new global recession — also fell on Monday over the uncertain outlook for US interest rates before a closely watched jobs report due on Friday.
A US Federal Reserve rate hike could further jolt global confidence, which has already been buffeted by China’s slowdown.
“Investors are concerned about the strength of the global economy, which is why you’re seeing a sell-off in various stock markets,” said strategist Ayako Sera at Sumitomo Mitsui Trust Bank Ltd. in Tokyo.
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The Shanghai stock market ended down 1.23 per cent on Tuesday, having tumbled by more than four per cent at one point.
Tokyo slumped 3.84 per cent, with a stronger yen hitting exporters, while Sydney fell 2.12 per cent and Hong Kong finished 2.24 per cent lower.
London’s benchmark FTSE 100 index plunged 3.03 per cent, while the CAC 40 in Paris dropped 2.40 per cent and Frankfurt’s DAX 30 fell 2.38 per cent.
“The (Chinese) manufacturing index still shows that the economy is in the process of seeking a bottom,” said Wu Kan, a Shanghai-based fund manager at JK Life Insurance.
Some analysts were not so pessimistic.
“We don’t think the readings are cause for alarm. For a start, China’s economy is increasingly driven by service sector activity, which still appears healthy. As such, signs of weakness in manufacturing are less of a concern than they used to be,” said Chang Liu at research firm Capital Economics.
Meanwhile volatility in China and other emerging markets has pushed up the price of investments considered safe, including the yen and gold bullion.
On Tuesday the dollar fell to 120 yen from 121.24 yen in New York trade late on Monday.
The European single currency advanced to $1.1256, up from $1.1213.
Oil prices meanwhile fell after recording gains of more than 25 per cent over the previous three sessions.
The commodity had surged Monday after the US department of energy said domestic output in June was much lower than first stated, while monthly estimates for January-May were revised lower.
Also, a statement from Opec — to the effect that the continuing downward pressure on prices “remains a cause for concern” — fanned hopes that the oil cartel could cut output levels.